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Open Mic Night: From JV To Varsity – How To Start Buying Your Own Notes with Ron Lambert and Jamie Bateman

GDNI 67 | Starting A Joint Venture

 

Starting a JV can be really challenging, but you just have to find the right person to partner with for you to reach the top with flying colors. Ron Lambert and Jamie Bateman share their individual stories about how they took the plunge and started doing their own deals. Ron and Jamie have done something that many hesitate to deal with, which is taking the leap. They share their experiences about being a JV and having a relationship with a note investor with more experience. They also share advice on surviving in the note business, along with some stories about collecting payments from lousy borrowers.

Listen to the podcast here:

Open Mic Night: From JV To Varsity – How To Start Buying Your Own Notes with Ron Lambert and Jamie Bateman

We’re doing something a little different rather than nattering on by ourselves or bringing in top experts in the field. We have two homegrown experts. Chris and I each chose one of our favorite JVs for a very special reason. These are both gentlemen who were JVs and very quickly took the plunge and started doing their own deals. We love to see the little fledglings fly. You have done something that a lot of people hesitate to deal, which takes the leap. We’re calling this episode, “JV to Varsity,” a fast trip for you too. We’re here to answer your questions about how they did it and how it worked out. What we would love to do to start with is each of you give us a short introduction about what you do in your normal life, what your real estate experience was and how you got interested in notes. Ron, do you want to go first?

I’m Ron Lambert. I’m based out of Dallas, Texas. I’m an engineer by trade and education. I am once a product manager in the Cloud communications industry. It can be very pressure-filled at times and not nearly as much fun as I wish, but it’s a good career for me. I got started several years ago. I was beginning to get the real estate itch again. I had had some rentals in the past. I knew I wanted to do something there and it was about not wanting to depend on a single job, source of income quite as much. I had lunch with a buddy. He was a buy and hold guy. He brought up the concept of fixing and flipping notes because he had done a little bit of reading. I immediately latched onto and got very interested in it. I went from there with doing JV deals with more experienced folks and now doing deals with investors as well as with my own money.

Do you now have your own JVs?

I do have done a couple of friends’ deal. There’s no lacking of truth and you learned by doing. I learned stuff as a funding partner, but not nearly what I learned day-to-day when something goes bad and I’m like, “I’m going to learn about this.” I do.

I’m always interested in whether people feel more comfortable working with friends initially or they feel more pressure when it’s a friend or family member and you’re responsible for what happens.

I’ve felt both. One of the deals is dragging out and now where we’re wearing BK collecting payments. My investor had begun talking about maybe wanting to be financed out of the deal and I was prepared to do that if he wanted to. Now, that there are some payments coming in, he’s going to stick with it for a bit longer. I do have a, “Don’t do business with a family rule.” This is more like a co-worker.

You’re a JV of mine. Let’s face it, if the deal goes bad, I don’t have to see you at Thanksgiving. No one wants to come to Philadelphia in November. Thank you, Ron. Jamie, can you share about you?

I live outside of Baltimore, Maryland in Baltimore County. I’m not too far from you, Gail. As far as real estate background, my wife and I have had rental properties for many years but didn’t ramp that up until about similar to round off a few years ago as far as taking real estate or seriously as more of a business type thing. Now, we have a small portfolio of rental properties, seven in total all in Baltimore County, local to us, which has been great. As pricing got pretty crazy, rentals can be pretty hands-on and we ended up pivoting. We didn’t purchase any rentals in 2018 at all. Somewhere along the lines, I’ve gotten turned on to notes just by reading BiggerPockets and different online resources. I’ve researched tax lien investing a little bit.

In early 2018, I started my notes LLC and I got the itch to pivot in that direction. Shortly thereafter, I did a JV with Chris. It’s more like a hard money loan originated through a broker. I didn’t purchase the note. For the majority of 2018, those were the two deals that I had as far as notes go. I had some other truly passive note investments and some funds, which I’m now slowly getting out of. During that time in 2018, I’ve researched and started networking. I didn’t fully jump in at that point. For whatever reason, maybe once football season was over, I had more time on my hands or something. I don’t know. I decided let’s take this for real. I had gone to the Paper Source Symposium and started to get some education like I said, but I didn’t take it seriously. At the beginning of 2019 is when I started latching on to Chris even more.

I can see the finger marks on them.

There was one point where I was like, “Am I asking too many questions?” He’s like, “Trust me, I’ll let you know.” At this point, I have a small portfolio of notes. I did my first JV. I sent the check to his IRA custodian. That’s where we are.

What do you do for a living, Jamie?

Always be cautious about changing servicers. Click To Tweet

I work for the federal government. I work for the Department of Defense. I was full-time until 2015. I only worked three days a week there now, which is great. The commute and some other things were starting to get to me. I work at Fort Meade, which can be an hour, hour and a half drive each way from where we live. The nice thing is I’m able to keep my benefits, which is somewhat rare even in the federal government. I would love to be at a point where I can take it or leave it. I feel like I’m moving in a direction, but there’s no need to fully cut the cord. It’s a good job. I enjoy it. I also have enjoyed moving.

I have a good skip trace at Fort Meade. Gail, Jamie also has something in common with you because you share a common borrower in Northwest Indiana.

Speaking of which, I was supposed to get a check.

Did you get to pick the check?

I did get the picture. I’m still trying to confirm because I’ve been traveling. I’m pretty sure we’re good to go. I think she fully reinstated.

No wonder she has nothing to pay me.

This was a performer that I purchased from Chris. It quickly became a non-performer. If she did pay this time, this is the first scent I’ve seen from her.

Let’s hope we both get something, a surprise in the mail. It will be quite a surprise.

The interesting thing is this borrower invested in the area. She does a lot of services for people like door-knocking and stuff like that. Every time she’d asked me for something, I’m like, “I’m not going to be paying. You pay this guy.”

It’s embarrassing to recommend someone who doesn’t perform. It’s embarrassing to sell somebody something that’s performing and have it died.

I’ll start with you, Ron, and we’ll go to Jamie. When you’ve gone through watching somebody as a JV to yourself, the first question I’ll start with is starting off in the process, the bidding process. Were you intimidated by that or did you think, “This isn’t too bad?” I’m curious what your thoughts were when you started to buy a note on your own and bidding on things?

I would love to ask an earlier question if I could, Chris. When you say you were JVs, you were comfortably ensconced watching someone else do everything and figure it all out. How quickly did you feel you wanted to do it yourself and jumped in? Did being a JV, having that relationship with a note investor, with more experienced make you feel like, “I have a little bit of a mentorship situation here. I should go ahead and think about buying some stuff myself.”

GDNI 67 | Starting A Joint Venture
Starting A Joint Venture: It’s embarrassing to recommend someone who doesn’t perform. It’s embarrassing to sell somebody something that’s performing and have it die.

 

Let me answer that. I’ve probably done eight deals or something like that, maybe nine deals with five people. The first one or two, there wasn’t a lot of communication. It could’ve been me being immature in what I knew. I didn’t develop that comfortableness. I called Gail or hit her up with a text, “I got a question for you when you got a minute.” I didn’t do a lot of that and I don’t know if that was me or them. When I ended up with another gentleman we all know, but I won’t mention names, who became somebody that I was comfortable talking to and picking up the phone and calling, my confidence went through the roof, except for that whole bidding thing Chris was asking about. I’m not going to have the money. What happens if I get all these accepted? It’s like buying a car. If they’re all accepted, I bid too high.

Fear of failure, fear of success, these are the top two in bidding. How about you, Jamie? How did you go from passive to active on your own?

At the time that I decided to JV, I knew I was going to take a more active role. Chris has talked about our deals previously. There have been some challenges for sure with that particular deal, but that did nothing to sway me from taking the leap. It wasn’t one of these things where, “Let’s JV and see if I want to do this. I had already decided that it was something I wanted to do but thought it’s prudent to not fully jump in. One of the investors I met out of Paper Source recommended generally doing some JVs. That’s a good idea.

Chris was always actively answering questions on BiggerPockets and I felt comfortable with him. It was a decision I’d already made, but it certainly helped solidify that decision. As far as bidding, it can be intimidating for sure. It’s not something where I’ll bid on 30 assets at a time. I’ve been onesie-twosies about it. Definitely the first one, it was accepted immediately and like, “I overshot that one, but we’re paid.” At the same time, it was a low-level CFD, which may be redundant. At that point, I remember telling my wife, “Honestly, I don’t care if I overpaid a little bit for it. I want to get the mechanics down, get the systems in place and get the feel for this.” I probably did overpay for it a little bit, but that’s okay. Since then I’ve been a little pickier on the pricing itself. I’ve definitely gotten a lot more rejections.

Had you calculated a yield? How did you decide what was the right price to offer?

That is one of the things that’s been challenging. I know you did a whole podcast on the performing note ROI calculator. Essentially, that’s what I have been using is a version of a performing note, ROI calculator. I’m going from there. I’ve based my bids on a yield that I’m trying to get. I had not used a crazy involved non-performing calculator. I know Chris has at least. I’m trying to keep it simple, but also be smart.

Keep it simple because that’s one of the things that I struggle with early on. I joke about my calculator because I built this tank of a calculator. Now I look at it and I can look at a list of CFDs and the price because I’ve bid on so many times, the ballpark range to bid on something. I know a lot of people may knock to so-called stair-step method, but the reality of it is you create your own method of when you see a UPB and P&I in this price range, it’s going to be around a certain percentage, especially on CFDs in the states that you’re familiar with. You know what the cost is to foreclose and everything else. You’ve got that track record.

Ron, what was your first bidding process like?

I am no Excel wiz like Chris, but I do live in Excel all day at work. I have a gnarly ROI calculator that I spent way too much time on nonperforming assets, all these different exit scenarios. I still use it. For performing assets, I definitely have had my own light version of Chris’ performing asset calculator. I check the number of payments and those kinds of things. I do not have enough experience with anything, but even CFDs yet to be comfortable in the way that Chris said, “You bought enough in this area. You know what the properties are like. You have a sense of what that person is going to be.” I’m not there yet. I’m getting faster, especially with John Keith stuff.

You have to be fast with them.

I did get my bids in. I’ve been reading a book and it talked about what makes the human being happy. It had lots of different ideas, but one of them that resonated with me was learning something and getting good at it. It’s taking something on and the satisfaction of honing your craft.

What’s the name of the book?

Do not get yourself in trouble with too much marketing. Click To Tweet

It’s not coming to me. It’s about the world we live in, Chris, where you sit there and you’re interrupted all day, this constant stuff. It seems like every day when I’m doing something or especially when I’m looking at a tape or I listen to a podcast, I find more things that I want to change in the way I do it. Tweaking it and getting better and better at it. I’m getting over that fear of not having the money. I feel like I know enough people now that if I get caught in a corner with a group of good assets, it will be okay but that took a while.

People are so hungry for notes right now. You could almost flip a note.

One of the things I did that was important to me is I went out and after listening to Robby and Chase’s podcast for so many years, I sought out somebody that I wanted to have as an accountability partner. We meet once a week with rare exception. That’s made a big difference for me. He’s in the same business. We can bounce ideas off each other, failures and cry on each other’s shoulder.

Is this about notes or in life?

It’s notes.

Most people don’t. When Gail and I started a podcast, we’re accountability partners in that sense. I recommend it to always have someone to bounce ideas off of because it’s a small business and it’s competitive. In the same time, most people don’t buy the same things or look at certain things. It’s always good to run ideas off of people.

I always tell people the first time I bid on anything, it was in a group situation where there were 60 people looking at 1,200 assets. A lot of people were buying for the first time. There’s much trepidation. We had chosen an order. We had a draft. There was an order in which we were going to choose. Of the 60 people, my draft number was 54. I’m thinking of looking at these, I have to find at least 55 that I’m interested in to know for sure I’m going to get one of them. It was impossible in the end. I only found eight because I was going off rigid. It has to check all the boxes, the right kind of town, the right kind of street. We’ve got to the draft day and people started picking and I was totally flabbergasted to see that 53 people went ahead of me. No one picked any of mine. The funny thing was I didn’t think to myself, “I must be mistaken about these.” I thought, “I’ve got to bid on these.”

That’s an interesting question to bring up, Gail, because a lot of people talk about staying inside a small box when you get started. In this business sometimes if you can think outside that box, you can be very successful as well. As you start to get going, Ron and Jamie too, were there certain parameters like, “I’m only going to be in this state or with this type of asset” or curious if that’s how you started to keep things simple stupid as they like to say, which I am a big fan of.

I didn’t set up rigid parameters as far as geography goes. In fact, at this point, it’s different owning my JV deal and the hard money loan. I have eight notes in eight different states. I don’t necessarily recommend that. At this rate right now, I’m not looking at any other states. I would have probably kept it to three or four states in hindsight, but at this point, it is what it is. As far as geography goes, that’s how I would answer that question.

What about CFDs, notes and if there were values or certain areas or you looked at the asset and liked the asset?

I would say a mix of performing and non-performing CFDs to notes, close to 50/50 on each one. Maybe one more CFD or two more CFDs than the notes. I wasn’t rigid about that either. I’ve jumped in a little bit. There are certain things I like about notes and there are certain things I like about CFDs. I wrote a blog post touching on that. I wasn’t super rigid about that. To be honest with you, there are more CFDs floating around it seems like. You can go with the flow there sometimes.

It feels like training wheels. You can take more of a risk. I don’t know if you were intentional about spreading out into different states. I intentionally thought in my first months, “Let me buy as many different things as I can and have as many experiences as I can.” I bought one in BK because I didn’t know anything about it. I thought, “Let me find out about that.” I am hoping after years that I am picking up the sheriff’s deed to the property. That was a serial BK declarer. The cat and mouse game went on and on. He kept it going.

GDNI 67 | Starting A Joint Venture
Starting A Joint Venture: For first buys, it’s promising to find an area and become more familiar with it.

 

I know Chris loves BKs. I definitely have drawn a line there and have not dabbled in that or anything that’s immediately headed for foreclosure. Although it does have one now, which is a decent-sized note in Florida that’s headed that way for sure. We’ll see how that one turns out.

How about you, Ron? Did you have anything specific that you were looking for in your first buys?

I was trying to limit to the usual set of states and on the usual property value ranges. I definitely was too tight on the criteria and I still struggle with that honestly. I wasn’t finding the assets that I was looking for. I’ve relaxed that a bit. Now, I’m pivoting towards the thought around, like Chris was saying, finding an area and becoming more familiar with it, a state to where a portion of the state, something like that. I try to get better and better at it, build teams, those kinds of things. When I struggle to find assets, sometimes I find myself going, “That state wouldn’t be that bad,” and that’s probably not a good thought.

It’s still a struggle. I missed out on some assets. This was something my accountability partner, Ryan Cooper is his name. He ended up buying some stuff out of that and I didn’t. I came to him and I said, “I want to sit down. I want to go through this together. I want to talk about why you decided to buy it and talk about why I decided not to.” It felt like a good exercise to go through. It came down to when it was all of a sudden done wasn’t a whole lot of difference. I was being too picky. I was being picky and choosing not to take a little bit of a risk. I ended up with no assets.

Why did you buy or not buy conversations? Mostly like me going, “What in the world were you thinking?” Do you ever feel like when you’re struggling to make a decision, it’s fear and not that you don’t have the information that you need? Were you fearful at the beginning?

Yeah and I’m more fearful when it’s somebody else’s money. I’ve been through a couple of deals that didn’t end that well. In one case, it ended okay but it was an extremely low return. The asset manager, the guy I was working with, he did the right thing and he took zero return. I got one little there was. In another case, I was the funding partner in one that dragged out too long. I didn’t want to pull the ripcord and say, “Buy me out,” but I did eventually. It was handled the way you would want it to be handled. That’s who I am. I have ethics and that stuff matters.

It never gets easy. I’ve had a conversation where my first fix and flip I was going to do on a note is no longer a fix and flip because I’d finally bailed on it. Finally, I went back to the JV on and communicated and said, “It’s not going to work.” The one I have with Jamie, that one had a utility issue that was extreme. You can’t win in stuff. You want to make sure you communicate. You guys have JV’d with people and now you’re on the flip side. This is how I treat it too is I’m looking at if I was in their shoes, what I want to be told and what I try and relay to everyone else. Sometimes there’s good news, sometimes there’s bad news. You still need to whatever it is, make sure you have the communication. If it’s bad news, typically you want to put a plan together of, “This is what happened, but this is what I’m going to do to try and fix it.” A lot of times people may have real estate experience but might not have this specific note experience as well.

It’s cool that you guys were JV. You were the funding partners first and now when you have funding partners, you understand what it is that they’re feeling, thinking and wanting from you.

I was definitely a little fearful about taking someone else’s money in a good way. Mine is with a relative. I didn’t actively seek that out necessarily. I knew I wanted to head in that direction. It was mutual, but my uncle presented the idea to me and wanted to be the funding partner. He wants to learn about notes and be more of an active investor himself. In a way, that helps push me over that fear factor and move forward with my first JV deal. A healthy amount of fear is a good thing. I absolutely am less fearful with my own money than with someone else’s.

There are some stages. People were like, “It’s my IRA money. I can’t use it now anyway. It’s no big deal. It’s my cash. I can never go to a holiday event again.” It’s the top of the list of you treat it like it’s your child in the sense. I know that’s what I do when I look at it the same way. Somebody, if I give them money, protecting it as I protect theirs.

A good thing about family is we’re fearful about disappointing them. On the other hand, they can be as upset that you’re not including them. There’s something good going on. It’s a bit of a dilemma. I want to say something about family too. You have an uncle who came to you. My family still has not asked me to do anything for them, which I find so funny. It’s like in our little world, I am respected, but they’re not in this world. My daughter finally allowed me to buy her a tiny little CFD that has two years left on it. It costs $2,800 and the gross ROI is 97%. I said, “I’m not ever going to find a better one for you.” I feel pretty confident they’re not going to stop paying now. They’ve got 24 months left. The house has a ton of equity in it. It’s a CFD. Tell us about your biggest, scariest or best note experience so far on your own. What are the memorable ones that you’ve had so far?

I talked about my asset that’s in the ditch and I owe already. Gail, to give you a little update, I’ve spoken to my first borrower now because I sent her paperwork and saying, “You have to do this or this is going to happen.” She picked up the phone and called.

There's always something new to learn. Just be mindful about what you're getting yourself into. Click To Tweet

It’s the borrower and not the tenants who are in the house.

That one has probably been the most challenging one for me. The one I’m the happiest about is where I’m the funding partner when we had a full payoff. That investment, which has been maybe a few years, I don’t know. I’m going to end up netting 17%, 18%. It’s all in my Roth IRA. That’s a pretty good story. You mentioned the serial BK person, my BK I mentioned earlier, I knew when I bought the asset this guy had done that before. Although he did put a big chunk of money down when the first time we tried to foreclose on him. He never paid again for quite some time. I’ve spent a lot of money on legal with that particular one. People say they like BK’s because now you’ve got attorneys to talk to attorneys. Those attorneys are expensive and the hidden fees you’ll learn about. I did talk to an attorney in Ohio. He gave me the low down that was all pretty similar to Chris’ story as far as what foreclosing on an asset in Ohio is going to cost me. It’s pretty ugly.

What did the borrower say to you? What did you send her and what did she say?

I sent her three times a letter that said, “Here’s a cancellation of the land contract. If you and your ex-husband would simply sign these, this problem will go away. If you don’t want to do that, I need $750 by this date to show good faith that you’re going to resume payments. If not, we’re going to have to go to legal.” She called and she’s given us the same story that she’s been given the servicer. That she’s been making payments, they’re not being credited to the account and all this stuff, which is not true.

Had you received any payments of record from her?

Only one was submitted and it didn’t clear. She always says she’s going to pay and asks a ton of questions of like, “She didn’t even read what I sent to her in the envelope. How much do I owe and what’s my payment?” It feels like noise rather than a productive conversation. It’s in her court now. I do have a demand letter being pulled together. We’re going on vacation so I’m going to give her another week for free and we’ll see what it looks like when we get back.

She’ll probably be on vacation too.

My answer to your question, Gail, would be the one that’s in Florida that’s headed for foreclosure. It was definitely more on the non-performing side when I bought it. I got it at a pretty good discount. It’s one of the two that I’ve purchased through Paperstac, which I’ve been very happy with their process. I know you’ve talked about that on a previous podcast. They opened up the CFD market. This one is a note and similar to what Ron said, she’s made one payment that came back NSF. That’s it. Not to mention they’re on a two-year loan model, which was in place when I purchased the note. Madison was saying that she was looking at refinancing. I’m sure you’ve heard this one before, probably on some of yours. ROI-wise that would have been phenomenal. She was on her way to Maine and wouldn’t have cell phone coverage the whole time she was there.

Somehow you can afford a vacation and not $400 payment. The principal balance is $97,000 or something like that on this. Allegedly she and five other people were looking to do this refinance together. At the end of the day, there are six adults living here and that you can’t come up with $400. For about a day or two, I knew to keep my emotions in check, but it was a little bit exciting as far as the possibility of is she going to refinance and double my money in a few months here or probably more than that? Since she came back from Maine, she’s gone dark. I sent the collateral file down to Erin Quinn, an attorney in Florida. We’re proceeding with the foreclosure. We’ll see where it goes. I knew from the get-go that one looked a little ugly.

I’ll ask a question, what has been the biggest learning curve when you do it on your own after everyone’s taken training and done things. I noticed trainings don’t cover everything. What has been like, “This is more difficult than I thought?” That’s something that is also, “This isn’t as complex as people make it sound.”

Do you want to take that, Ron?

I’m thinking. That’s a good question.

GDNI 67 | Starting A Joint Venture
Starting A Joint Venture: One of the great things about notes is the plethora of exit strategies.

 

I write a couple of things down. I thought you might ask something along those lines. One of the things that have definitely been a surprise to me is how different each state is. I knew there were differences. My wife and I each worked for two separate title companies years ago. I’m not completely unfamiliar with what a title company is or what documents get recorded especially when you throw CFDs into the mix. I wasn’t totally familiar with land contracts and what gets recorded. Particularly even within the inner state in St. Louis, the deed has to have certain things on the front page.

Without getting too much into the weeds, that definitely has been surprising. I don’t have a massive portfolio of notes yet, but two of them have been rejected. I don’t mean rejected and resubmitted. I mean, “You have to redo this entire document.” I would say the differences among states with as far as a document recording and what’s required. When we get into registering as a foreign entity, which I’m still working through. That’s been one big surprise. I knew they’d be there, but it’s been more pronounced than I expected. Understanding CFDs, the difference between CFDs and notes. I get it, but you throw allonges in there. It can be a little messy. Another one was forced-place insurance. It’s not something I’ve dealt with before with rentals. I have rental property insurance and landlord insurance. I had never learned too much about forced-place insurance. The last thing I’ll say is joint ventures. I had never done a joint venture on either side of it with the rentals or anything else. Communicating the communication with that. There’s a lot to that.

Would you mind sharing with us what states your holdings are in?

They are in Florida, North Carolina, Maryland is the one with Chris, Mississippi, Missouri, Michigan Indiana and there’s one more.

Those are reasonable places. It’s not exactly dangerous there.

I’ve stayed out of Ohio. For the most part, these are pretty common states.

We have question came through, “Have you completed any deals on your own yet?” He asks a question, you and I and Gail too of what percentage of the notes have you lost money on and if there was a loss, what percentage of the investment was it? We can hold that until the end as well. “Have you closed out any deals yet?”

I have not so I can get that out of the way. That was part of my fear with taking on a JV, to be honest. One of the things I do like about notes is the plethora of exit strategies. There’s not always eight to ten might be promoted, but you normally have at least more than one exit strategy. I like that, but I have not closed out a single deal. I’m a newbie in that regard.

Me too, as far as the assets that I’m managing, having closed on that yet. The one that entered and started making payments in BK. We were not expecting the courts to allow this gentleman to leave the mortgage in the bankruptcy. We did motion for relief. It was granted and they pulled it back in. I had done some modeling with different exit scenarios. This gentleman and I, my partner, we’d sit down at a restaurant, walked through it all and talked about what could happen. The judge had more mercy than we expected. Back to your other questions, the things that were maybe a bit more than I expected. You always hear that there’s a lot to legal, but I was surprised how much there is to legal. The steps, the publication and the cost of the publication, that stuff was surprising to me.

This gentleman, this serial BK guy, in effect, I paid for two foreclosures because the first one was a flat rate deal. It wasn’t that expensive. He met our demands of a significant payment to stop that and only to find later that we had to do it again. That all ended without me having a house. I have a borrower that’s being cared for and watched by a trustee. It’s expensive. Jamie mentioned the state differences definitely that. Managing vendors, you hear about that and you hear about it from virtually everybody you talk about that’s in any way in an education position. That takes more of my time than I ever imagined. Some of it may be that I don’t have a large enough book of business to develop relationships to allow me to place a call and look at different assets instead of one asset and those kinds of things. The economies of scale. It’s definitely a lot of work. You asked about states earlier, these are either states that I have assets in now or I have had, Ohio, Missouri, Texas, Mississippi, Indiana and Florida.

I have never bought in Texas. You’ve never bought in Texas, have you, Chris?

No, I got an email from somebody with two performers in Texas that they wanted me to look at. I haven’t bought there yet, no. I had another question. You talked about vendor management. The one I wanted to talk about is servicing and servicing fees. Servicing with outreach and other things, did it meet your expectations? First with service and fees, where you’re aware of how many fees it was or was that shocking? The second part of that question is, “Do you think your servicer does enough or what was your expectations going in? Do you think they meet them? Do you think I didn’t realize this is what they did?” I’m curious about your opinions on that.

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The first note that I bought was I’m being serviced by SN. I was not particularly impressed with what they were doing and it seemed like it almost was like they were way too big for me. It was clunky. It was not impressive. Moving that asset to Madison that I’ve been using since then, that had some effect on my borrower. I’m very cautious about changing servicers when I don’t have a paying borrower. I’ve been bit a couple of times. I contemplated. I don’t do it without thinking. Madison has done a better job in general. I’m not overwhelmingly blown away by their loss mitigation skills, but I’m not dissatisfied. I do get tired of the fees but it seems like it’s part of the price of admission.

My attorney, was in client managed. They called up. They send in a check to reinstate. Madison didn’t do anything but they get their $500. That’s what I signed up for.

The first time that happened, I had a CFD. It’s the same thing. It was being managed by them. The first time, I was road testing Madison. They made one call to the guy. He was like, “Okay.” He sent in $3,400 and almost totally reinstated. In their minds, he did reinstate and they wanted to charge me $700 for reinstatement. I was like, “You literally just called the guy and told him where to send it. I said, “No,” and they gave me the money. I’m not sure I’ll be welcome when I run into these people. I haven’t seen Shante since then. We’ve dined together. It’s all forgiven, but you can say no. I do it. I recommend it.

I would echo Ron’s thoughts on Madison. I’ve only used Madison so far. I’m not blown away or anything as far as impressed. For the most part, they respond to me fairly quickly and that’s important to me. It’s like, “Are you hearing me?” With any relationship, with a JV partner, communication’s key and with servicing, communication’s key. So far, I’ve been relatively happy with Madison. My expectations have been sufficiently not lowered, just going into it.

I was going to say, “Isn’t anyone?” We all dream of full servicing. It exists in our minds.

One thing I’ll say too is, I don’t know how much weight you guys put on this, I do like purchasing an asset that’s already serviced with my servicer. The transition is much smoother.

You’re buying on Paperstac so you can find those. The big sellers, they’re never serviced at Madison.

I know you’ve had to go back and make sure that any payments made. That’s one difference between buying a performer and buying a non-performer. It’s a little riskier in some ways to buy a performer. One little reason for that is that interim period before servicing kicks in. I am pretty certain if I hadn’t been tracking that, the payment would not have come to me and it absolutely should have. There’s another one that the same thing happened, but that one may have gotten sorted out on its own. If it’s already with your servicer that goes away. That’s mitigated a little bit.

I normally board everything at Madison now also, but I bought a pool of notes. To give it a whirl, I sent two of them to Allied, but the sellers get so used to your patterns. Even though they were told to send them to Allied, they sent them to Madison anyway. When I discovered it, they were like, “It’s too late. Why don’t you keep it up at Madison? No, I’m not doing that. You did it, undo it.” It took two months instead of one month for the transfer to happen. Payments were made. It was SN that was sending them. They sent them to the seller. They had the new servicer. They knew the information and where it was going. They send the money to the seller instead of to the new servicer. The seller has no idea. They don’t even know who we are. They don’t know our contact information. They don’t call us. Now they have emailed me. I know some people at the seller. I feel excited about that.

Gail, did your borrower become aware of that extra step? Was there a goodbye letter or anything?

They did get two goodbye letters. It was ridiculous.

That’s the part I was alluding to earlier. That one makes me nervous, confusing or giving them an excuse not to make a payment.

GDNI 67 | Starting A Joint Venture
Starting A Joint Venture: One of the things to love about note investing and real estate investing is you can make it what you want.

 

The worst-case scenario is they make it to the old servicer. I have not had a mortgage for a long time, but I refinanced that line of credit that I had on my house. I have a conventional mortgage. Two months in, they sold it. I got a goodbye letter and a hello letter. It was extremely confusing because I had automated payments. It was like some of the documents I got from them said I needed to change my automated payments. Others said, “You don’t have to do anything, it’ll happen. I suddenly had such what we Jews called with what people go through because it was ridiculous.

I’m also curious about the speed and speed of how things move. If you thought things would move faster or you think things are moving into speed, you thought they would?

I would have expected it to move a little bit faster.

Everyone has that. You expect things to move so much faster and even your attorney is like, “Come on.”

I think it’s as slow as I thought it would be. That doesn’t mean I don’t wish it was faster, but I had heard enough along the way that it’s like watching paint dry. That’s pretty much what it can be at times.

What were your scariest moments so far? Did either of you have a moment you were like, “I don’t know what I’m doing. This is terrifying?” I had one. It was the time I bought a CFD and there was no land contract and nobody had it.

You thought you bought something that was nonexistent. That was the fear.

It was a CFD, so the house was deeded to me. In that first ten minutes where you don’t know what to do, you’ve never seen this before, you’re not even sure anyone else has. I asked people and we couldn’t find anyone who had experienced it. I had this feeling like, “Should I throw this whole file in the trash?” I threw away money on so I can’t get it back. When the panic dies down, you realize like, “I own this house. I’m not enjoying it but whose problem is it if I don’t have a land contract? It’s not mine.

For me, it’s probably the same Florida deal. It seems like everything’s going back to that. I didn’t place enough emphasis if it’s a regular note and mortgage. Through our due diligence, on the recording side was in order, but I did not catch that there was an allonge assignment. The terminology can vary there. There’s allonge in the file that is incorrect. You’ve talked about this issue, Gail. The lenders along the way are out of business. I did not place enough emphasis on that as far as if we have to go to foreclosure, the fact that it matters. I assumed the mortgage and those assignments are all good to go. The note side and those allonges/assignments. Endorsements is another term for it. I didn’t understand that may be a real issue, particularly in Florida apparently. That was a moment to answer your question more directly. That was a moment where I was like, “Oh boy.”

Are you getting it resolved?

I personally was working that I made a little bit of progress on it. You can approach it from either side. You can go from the original lender or you can backtrack and go backward. I was making more progress going backwards. It’s not resolved yet. At this point, I’m hoping my attorney can help out with that. I do realize I’m not the first person in the history of the world that come across this issue and it will resolve but it’s not resolved yet.

I’m surprised at how good MetaSource is at catching small where it’s portfolio two or seven and the allonge says eight. They’ve been wizards so far with me. I’ve only had it happen a couple of times, but they caught it right out of the gates. I’m impressed. You have the attorney reviews we get. In some ways, MetaSource trumps them because they are eagle-eyed and detail-oriented where having a lot of attorneys get the big picture to make sure generally it’s all there.

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The thing with the attorneys too is you’ll send them information and they don’t ask for anything else a lot of times. You’ll send them this and they won’t even ask you, “Who are you buying this from?” They’ll get the O&E report and you might be buying it from Harbor Five and it’s titled in Window Rock. They don’t know who you’re buying it from and they don’t even ask. They may say, “It looks clean, but all of a sudden it’s missing. If you don’t send them like the land contract or something, the attorneys like, “I’m looking at what you gave me.” That’s one thing that I found early on frustrating is. You have to be very meticulous and say, “Here’s who I’m buying it from.” It’s one of my pet peeves.

Supposedly with a land contract, if the legal description, if there’s even like a typo in it, you could potentially have a problem with the deed. I challenge anyone to show me who is careful in their reading of these things.

Gail, I’m going through an error where I’ve had to get the land contract deed holders to sign off on a document correction because they had the wrong legal description on it.

I bet it’s like the lot number or the block or something. It’s not that there’s a “the” missing. It’s a bigger thing. That’s a big deal, BFD.

I do have a note. I have a note that the address was 503. The mortgage and the note are for 305. When you look online it’s recorded at 305 even though it’s for 503. The attorney said it’s the right proper lot description so you’re fine.

I had an attorney sell me the same thing, as long as the parcel number is okay, you’re okay.

One of the things I’d like to ask is what has been the biggest thing for the audience who are also right behind you and trying to venture. What advice would you give? Also, I know you put notes and other things, but feel free to spend a few minutes also talking about anything else you wanted. I’m curious what advice would you give for others out there?

It is a business that applying the right time and energy to you can learn and you can understand. There’s always going to be something new to learn. I don’t think it’s a place to jump in and not be mindful about what you’re getting yourself into, especially will caution the raising money side of things, what the SEC allows us to do and what they don’t. You’ve got to be mindful of not getting yourself in trouble with too much marketing in the same place, pitching deals on Facebook. I tend to stay away from that thing. I don’t even have to worry about, “Did I mess something up.” I definitely encourage folks to reach that point where you’re ready to take that next step. Jump in, the water is great. You got to be smart about it, be confident in yourself and use your network. Use the people that put this podcast together, that are guests on this podcast. Find the people that you can draw value from and you can provide value to them. There are a lot of people that will help you. I felt very welcomed into this community over the last few years.

I would echo everything that Ron said. Similar to any type of real estate investing, you got to be educated, be informed, but paralysis by analysis is a real thing. You don’t want to be on either extreme there. You don’t want to jump in uninformed. I learned by doing. You’ve got to figure that out for yourself. One of the things I love about note investing and real estate investing, in general, is you can make it what you want. You can buy and I have three or four notes that you manage and that’s fine. I don’t know how many notes Chris and Gail have that you can go that route.

There’s anything in between or even much bigger. You can do make it what you want. I would definitely echo Ron’s sentiment that I’ve found, for the most part, the note investing world and the other investors, to be helpful and sharing. If you’re starting out and you’re trying to try to grow your note business, you’re not the first person to have to stumble upon this problem. You’re not the first person to have been here before. Hopefully, you come across some unique scenario that you can share with the rest of us. It’s like someone’s probably thought about this before. To me, that’s pretty comforting. I don’t need to completely reinvent the wheel. Hopefully, that answers your question there, Chris.

One of the things I’ll add onto that is people start to grow. If you have somebody you JV with, use them as a resource. Jamie sends me questions all the time. I’m happy to answer and Ron, I’m guessing you probably might run stuff by Gail. Most people are there to help you as well as you grow. As people work with other people, when you start to grow, people always ask, “I need a mentor.” It like a JV deal. You can use that person a little bit. I know we meet once a few times something pricing on these, what do you think or things like that? It might take a day to get back to you, but I’m always trying to help somebody or get back to somebody in time and ask those people, especially for referrals too, especially if they’re dealing in the same states because you mentioned Florida, I’m thinking, “Please don’t be this one attorney. Erin as well.”

I wanted to say too, one of the hardest parts when you’re new is that, and we talked about this for many times, people wait to feel ready. If you’re waiting for that feeling to arrive, you will only achieve it when you’ve done several deals and survived things that have happened.

GDNI 67 | Starting A Joint Venture
Starting A Joint Venture: It is appropriate to not expect to love real estate all the time. There will be moments when you feel like it isn’t for you.

It’s like having kids. Are you ever fully ready to have kids?

I was going to say that my son came to me and said, “Should I wait to feel ready to have kids?” I said, “Not if you want kids.” At some point, you’ll feel like, “I could have a kid now.” I feel that way now. My youngest is ten. I’ll be good at it now. Don’t wait. It’s not going to dawn on you.

I’ve got two quick questions from Alex that I’ll touch upon as well. One was, is your best practices manual when you reach out to borrowers? I would recommend ACA International has for $100 or $150 an online training you can take that is short money. It goes through all debt collection stuff. I took it. It was a good experience to know what you should and shouldn’t be saying to people.

It was many modules, but it boils down to a fairly small number of things to do.

They show things not to do. There are a few like the son answers the phone. You can’t talk to the son about it without the person’s permission. Back to his question about the percentage of notes you’ve lost money on, I don’t know, 2%, 3% of notes maybe. I lost money on may be less than a little bit of a handful. I’ll bite a little bit of the bullet on that one. For the most part, in every deal, I’ve done if I’ve lost money, I’ve made my JVs.

It’s the same thing. Up until the fall of 2018 or spring, I had never lost money on a real estate deal. I was trying to keep my record going and I did. I lost $4,000 when I had to sell a CFD that had been canceled. I own the house outright and the house had an unfixable problem. All I could do was sell it. I couldn’t resell it on new land contracts. It didn’t seem right. I have two stinkers right now that I may only break even on or I might lose a little bit of money on. I have a house that’s in relatively bad shape. It’s probably worth only a little bit less than we have in it, but we would still have cleanout costs.

How do you lose money? You lose money if you have to get your cash out of it right now. We don’t have to do that. We can probably sell it on a new, not a land contract that’s not that livable, but we’d probably do a lease option on it to a contractor or we could partner with a contractor. It’s something Chad or new favorite thing when it gets into a house that is not worth what he’s got into. If he is partnering now with a local low-level flipper and the contractor will fix it up a bit. They will sell it to someone and if there’s any profit, they’ll split it. Your exit strategy determines whether how long you’re able to sometimes hang in there or having the flexibility to create a new lot land contract, find a good buyer borrower and be able to sell that asset to sell the loan later. As a performer, this is how you get yourself out of these losing situations potentially.

The ones that I’ve lost on, they needed heavy rehabs. I could’ve gone. I could have rehabbed them, held them as a rental for a year, flipped them and probably know would’ve made money at that point in time. There’s too much risk involved in that and that’s not my business plan. Instead of doing that, if I’m going to lose $3,000 to $5,000 on a deal, I’d bite the bullet and lose a few grand of my money than put $30,000 on a renovation out there, rent it for a year and trying to sell it. I look at the risk side of it. That’s for me, I don’t mind, it’s going to happen.

I don’t know if this is true for you, but there are common characteristics to the situations where these three situations where I’ve definitely lost money on one. We don’t know how it’s going to go on the other. On two of the houses, there was a fatal flaw in the house that even the people I sent a look at it did not see, even though it was glaring. In one case, the guy who went to see it was nervous about the neighborhood, skipped around the outside and did not see a major issue. In another case, a guy went to look at a house for me, said, “Get it based on the neighborhood.” He didn’t say to me, “I didn’t get out of the car to look. There’s a massive foundation problem.”

It’s right there. If he had walked halfway up the driveway, he would’ve seen it. The other case, it’s a bad neighborhood. It’s like a much worse neighborhood than we thought. We had sent an inexperienced realtor who wasn’t from that area to look at the house, the condition of the house. He didn’t have the local knowledge to know that the neighborhood was as difficult as it is. If you think about those, I don’t know how to be absolutely sure. Now I would know to question someone who says, “Yeah, buy it. It’s good.” I’d be like, “Did you look? Did you go out to the door? Did you visually inspect the entire outside?” Obviously, we never know what the inside looks like, which is also a big factor. These big foundation issues and stuff like those are the ones that get you.

I learned this from Jamie. Jamie, why don’t you tell people what you do instead of ordering to go out? Who do you have to go out to locations?

I want to say you briefly touched on this on a prior podcast. It’s Safeguard. It’s a subsidiary of Safeguard but they’ve been great as far as I’m concerned. I’ve only used them for the exterior inspection and it’s $50. Within, typically two to three days I have a report back. On a couple of deals, I skipped the BPO and I did the exterior inspection. I feel like in hindsight that was the right move on those. I’ve been impressed with the amount of money. It’s been good.

Notes is a neat alternative investment. There's a success to be had there. You got to stick with it, do the work, and learn from others. Click To Tweet

I thought it was genius in the sense because a BPO is somebody driving by, taking pictures from the car, often they go back to the office and have a real to run a CMA where this is somebody getting out of the vehicle. It’s like a three or four-page report they provide you. They look at the roof. They look at the foundation. They walk around the house. It’s a thorough report.

I’m surprised they produce it that quickly.

Stacy is her name, that point of contact there. She was not happy with the initial job that the inspector did. It did take a few more days, but she was insistent on quality. I’ve been happy with that. Have you been using them, Chris?

I have not used them yet. You’ve mentioned that I haven’t had a lot of acquisitions that required something that was like this except for the assets that Gail and I took down. There was no home inspection required because of the home.

They are so terrible.

I sent Gail the photo of one of them. It’s a joke because there’s a picture of two lawn chairs sitting in the front yard facing out that was there, but the house is no longer there.

For people who are reading for the first time, Gail and I bought that included. They’re closing out the fund. We were taking down three assets and they threw in twelve assets that they needed to get off their books. It was like, “Please take these and have them. We know you’re buying three but include these as well so we can get them off our books and closed the fund.” That’s some of the things.

For all the brave souls who have signed up to try to help us try to squeeze a little juice out of the other ones. We apologize for the time it’s taking us to get the Slack group together, but we’re getting there.

Ron, we’ll start with you. Why don’t you let people know if you have any final thoughts and also how people can reach out and contact you and go from there and then we’ll let Jamie.

I encourage people to stick with it. I have a busy job and I don’t have as many hours. I have a young family as well and drive as many hours as I’d like sometimes. It’s a neat niche. It’s a neat alternative investment. There’s a success to be had there. You got to stick with it, do the work and learn from others. Ask around, but for people that have even a little more experience than you do, maybe they can help a little bit. As far as contacting me, IECVentures.com is my company. I’m going to give you my contact number (512) 670-8304 and email me at Ron.Lambert@IECVentures.com.

Thank you. Jamie, final thoughts.

I’m seconding what Ron said. I’ve enjoyed 2019 as far as becoming more of an active note investor. It’s a neat niche. It seems like pricing has tightened a little bit. Every niche has market cycles. It’ll loosen back up again, who knows when. I would reiterate that perseverance and persistence stick to it. It’s not always rainbows and butterflies. I know one of the reasons people like your podcast is you’re real and share the good, bad and the ugly. I was joking with Chris that you do that to keep up the good deals for yourself. Knowing that going in that you’re going to face struggles or challenges, helps you when you do. I’ve enjoyed the note world so far. I’m fairly new to it for sure. I want to thank you both for having given me the opportunity to be on. As far as to contact information, if I can help anybody, feel free to reach out. My website is LabradorLending.com. My email address is BatemanJames@LabradorLending.com.

I was going to say it’s cool that both of you mentioned enjoying it despite the fact that you’re in the most frustrating early stages and the time when you have the most fear and trepidation. It is appropriate to not expect to love it all the time. Even in the early days, you should have moments where you feel like, “I like this,” and if you don’t, maybe it isn’t the right real estate for you.

Go back to Ron though as well as having an accountability partner and even if it’s somebody to bounce ideas off of because you’re going to have days where like I had one that I had an issue with the borrower who gave it to another borrower and foreclosed on that borrower. The sheriff gave the deed to that person, twenty minutes later, I get a guy wanting to hand the contract for deed back to me. He signed a lease option with the guy. The other thing too is that I’ll mention that sometimes especially I am very high strong Type A personality and Gail is much more leveled.

I’ll be like, “What would you do in this situation?” It’s good to have somebody like that and find somebody, in a group or as you start reaching out to more people. That’s one thing I recommend to people as well is as you’re getting going, reach out to other people. When I started out, I reached out to Wayne Snell and Adam Adams. Adam was very helpful. Wayne was as well. They gave me some advice and tips. It’s reaching out to people and even if you make one phone call a week to somebody and buying, you’ll end up learning a lot as well.

I also rewrite all of Chris’ stuff and he checks my math. We have a very symbiotic, helpful relationships and supportive.

I went to college I went to because I did not have to take English in college. It’s the only reason I went there. My college made fun of your college. Again, thank you both for joining us. Coming on and sharing your stories because I know some people sometimes a little timider. I do want to thank you because a lot of people can take this and add value to their businesses and also realize it’s Gail’s term, rainbows and butterflies, whatever it is but it’s not all that. There’s going to be struggles at times. Don’t think it’s not normal. You’re always going to have those struggles no matter you’ve been doing this six months or six years. Thank you for that. Gail, do you have any final thoughts?

No. Thanks, gentlemen. You will inspire many people to take a chance, hopefully. Thank you for joining us.

We end every episode by saying thank you for reading. We appreciate everybody. We enjoy people leaving us reviews on Stitcher, iTunes, Google Play. Feel free to reach out to us and join our Facebook Group, Notes and Bolts From The Good Deeds Note Investing Podcasts. We put a lot of good stuff on there and a lot of the freebies we give away, we’ve put on there as well. As always, go out and do some good deeds. Thank you.

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About Ron Lambert

GDNI 67 | Starting A Joint VentureIEC Ventures is a private real estate investment company based in Texas. We invest in 1st position non-performing real estate notes across the United States for our own portfolio, as well as for our joint venture partners and private investors.

IEC Ventures is committed to treating borrowers with respect and dignity, while seeking mutually beneficial resolutions to outstanding delinquent debt issues.  Through the use of our network of licensed service providers and vendors, IEC Ventures keeps borrowers in their homes if at all possible, provides above-average returns to our joint venture partners and private investors, and contributes to the health of the neighborhoods in which we invest.

Please contact us if you would like to further explore investing in notes with IEC Ventures. Thanks!

About Jamie Bateman

GDNI 67 | Starting A Joint VentureFounder Jamie Bateman has been an active real estate investor since 2010. He and his wife, Emily, manage a portfolio of investment properties in Baltimore County, MD. They have experience in both the mortgage and the title industries.

Jamie values integrity, consistency, and transparency. He takes pride in assisting those who are motivated to incorporate non-traditional investing strategies into their wealth-building plan. He also recognizes that sometimes homeowners come across challenging circumstances that necessitate creative solutions to help them stay in their home.

Jamie loves to spend time with his family. A former U.S. Army officer and collegiate lacrosse player, he enjoys slowly progressing at Brazilian jiu-jitsu, watching football, and coaching youth lacrosse.

 

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